Goodbye 2019, and our guide for 2020 in global equities
Head of Equity Strategy
Summary: The return in global equities have been much higher than even the wildest fantasies of market participants back in early January. Significant positive impulses from central banks and commitments of fiscal spending seem to have stopped the bleeding with global leading indicators suggesting the global economy moved into the recovery phase in October. What does that mean for equities in 2020? We also talk about the signs of rising inflation expectations and how this should be played in global equities.
With less than two weeks to New Year we are leaving 2019 with a feeling of bewilderment and a sense of “can this really continue?”, as the year shaped up very differently from what we expected a year ago. In early January before Powell’s famous U-turn consensus was that the Fed had made a gigantic policy mistake hiking the rate in December 2018 paying no attention to signals coming from financial markets. What endured was the second worst December for US equities since 1927. The Fed’s U-turn and subsequently easing of monetary policy followed by the majority of the world’s central banks lifted sentiment and equities erased the Q4 2018 losses by April 2019.
Since then the US-China trade war hamster wheel turned multiple times causing markets to be driven by tweets and trade news headlines frustrating market participants. During the second half of the year many countries (South Korea, Japan, Netherlands etc.) planned higher fiscal spending in 2020. The combination of stimulus from central banks and governments extended the momentum in global equities despite falling profit growth, which is currently negative for emerging market companies, and as of yesterday the NASDAQ 100 is up staggering 39.5% on a total return basis. In this impressive rally for the technology sector lies also the culprit to the short-lived outperformance of value stocks that occurred during the year. In a low rates and growth environment technology companies with monopolistic power is the preferred segment. But this trend could easily be challenged as we will see in our guide for 2020.
One of the interesting developments the past month is the steepening of the US yield curve (10-2Y) reaching the highest levels observed in 2019. The rise in the yield curve can be decomposed into multiple parts where one of them is inflation expectations and this factor observed through break-even rates is clearly a major explanation. Our head of commodity strategy, Ole S. Hansen, has lately talked about food inflation is also coming to live across many food categories. What are the implications for investors if inflation is finally picking up?
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.